Small Business Valuation General

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Anonymous
Small Business Valuation General 2016-02-26 17:22:12 Post No. 1112428
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Small Business Valuation General Anonymous 2016-02-26 17:22:12 Post No. 1112428 [Report]

I'll kick it off with the situation I'm in and the questions I have around it.

I've been offered a partnership buy-in for a small company. I know a bit about valuation, but this company is really young (6 months) and the market it operates in is pretty young too ("Escape Game" entertainment), so that makes it even more complicated to pin down a number I'm confident in.

I worked out a floor of about $125,000 liquidation value, and they gave a number of $550,000 based on projected revenue for a year plus current assets as they've calculated them. I'd consider that the ceiling value but they seem pretty stuck on it as the final value.

The market is getting increasingly competitive (7 places running now in our city of 1m, and 2 more opening soon). My services (electronics design) are a big part of what differentiates them from competitors.

How would you wise anons factor in the risks that come from running a trendy business in a market that is rapidly saturating and becoming more competitive? Would it be out of line to say that the skills I contribute to the company have intangible value that should be factored in to my buy-in? What the hell else should I be considering?

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Anonymous 2016-02-26 17:29:06 Post No.1112440
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Anonymous 2016-02-26 17:29:06 Post No.1112440 [Report]

wow you're an idiot.

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Anonymous 2016-02-26 17:29:48 Post No.1112442
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Anonymous 2016-02-26 17:29:48 Post No.1112442 [Report]

>>1112428
It is wise to not value a business based on projected revenue, but on actual revenue. The projected revenue should just be a incentive to get in the business but nothing more than that.

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Anonymous 2016-02-26 18:59:27 Post No.1112578
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Anonymous 2016-02-26 18:59:27 Post No.1112578 [Report]

>>1112442
Thank you. That's my feeling as well.

If they had been running for 2 years and the revenue stream was proven, then I'd be comfortable with a revenue multiplier type valuation, but there is just not enough data yet.

>>1112440
no u.

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Anonymous 2016-02-27 00:20:01 Post No.1112918
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Anonymous 2016-02-27 00:20:01 Post No.1112918 [Report]

What's the percentage and for how much?

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Anonymous 2016-02-27 00:45:43 Post No.1112954
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Anonymous 2016-02-27 00:45:43 Post No.1112954 [Report]

Hey, I have a virgining kneepad business. It's only been open for 2 months, but I project my revenue to be 8 trillion dollery-doos. Are you interested in buying for 500k?

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Anonymous 2016-02-27 05:32:09 Post No.1113231
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Anonymous 2016-02-27 05:32:09 Post No.1113231 [Report]

(OP here but I'll have a new ID because of posting from different computer)

>>1112918
Well I've got $20k to invest so at a $500k valuation that's 4%. I'd get a vote with equal weight to the other shareholders votes though.

>>1112954
Yeah, you're not that far off but they've been open for 6 months now and are bringing in between $30-50k EBITD per month. Not bad.

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Anonymous 2016-02-27 06:57:31 Post No.1113320
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Anonymous 2016-02-27 06:57:31 Post No.1113320 [Report]

>>1112428
Small businesses aren't worth shit desu.

Your best bet is to invest your own time to grow the business. Don't let investors hop in and get too much stake.

For example, I made ~320K profit (~800K revenue) last year and I wouldn't consider my company to be worth much over 1M from an investor's standpoint due to uncertainty and Jewery.

If you know what the fuck you are doing, an investor wouldn't price that correctly, therefore he would undercut the intrinsic value of your business.

TL;DR: Getting investors is a game of trying to exaggerate how much your business is actually worth and bailing once things go south if you can't maintain growth.

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Anonymous 2016-02-27 07:13:34 Post No.1113335
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Anonymous 2016-02-27 07:13:34 Post No.1113335 [Report]

>>1112428
Hypothetical money is worthless, ask enron.

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Anonymous 2016-02-27 07:38:03 Post No.1113353
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Anonymous 2016-02-27 07:38:03 Post No.1113353 [Report]

did you do a DCF